Thursday, February 05, 2009

Obama goes Nuclear

"President Barack Obama warned on Thursday that failure to pass an economic recovery package could plunge the nation into an even longer, perhaps irreversible recession, as senators searched for compromises to whittle down the enormous bill.

Senate moderates gathered behind closed doors in an effort to find at least $50 billion in spending reductions that might make the $900 billion-plus package more palatable to centrists. Democratic leaders hoped to pass the legislation by Friday at the latest.

Obama painted a bleak picture if lawmakers do nothing.

In an op-ed piece in The Washington Post, the president argued that each day without his stimulus package, Americans lose more jobs, savings and homes. His message came as congressional leaders struggle to control the huge stimulus bill that's been growing larger by the day in the Senate. The addition of a new tax break for homebuyers Wednesday evening sent the price tag well past $900 billion.

"This recession might linger for years. Our economy will lose 5 million more jobs. Unemployment will approach double digits. Our nation will sink deeper into a crisis that, at some point, we may not be able to reverse," Obama wrote in the newspaper piece."

People, an irreversible recession means that GDP will shrink to zero and the USA will cease to exist. Can it really be that Porkulus is the only thing standing between us and extinction?

If we keep the financial system afloat and the Fed keeps up "quantitative easing" then I think the recession will be reversed absent any fiscal stimulus. Now it might be a long time and a good timely stimulus might well help reduce that time which would be excellent if it's long run effects were not worse than the short run benefit. But, this bill is an ugly mixed up mess of stimulus, Obama initiatives, and political pandering. It's not the only thing between us and the abyss.

Oh, and the pandering is not only on the Democratic side. The Republican idea of tax breaks for new home buyers and interest rate subsidies for homeowners as a way of trying to raise housing prices is borderline insane as Ed Glaeser eloquently argues in today's WSJ.

This recession is going to hurt no matter what because of the collapse in housing wealth and the necessary reallocation of people and capital to other sectors.